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Two Fintechs Fueled Extensive Pandemic Relief Fraud, House Report Finds

Wouldn’t it be nice to think that the government efforts to help businesses get though the worst part of the pandemic, would have been met by sincere efforts of the people and entities who were tapped to participate in the $800billion Paycheck Protection Program? Well unfortunately, some saw it as Opportunity with a capital O, not for others who it was intended for, but for themselves. Although challenging to understand how they thought they would get away with keeping grossly excessive fees once they came to light, one can only assume that they believed there was a layer of protection of some kind, that would keep their scheme undetected. Oops!

It is simply reflective of the fact that we are not properly and effectively taught as we grow up, that there is in nature and life a Law of Cause & Effect that is not man made, and of which nobody can explain the origin, that balances these things out. Ultimately, there is no protection from detection. Sure, there may be diversionary tactics that can seem to work in the short run. But eventually? Nope! Eventually the truth comes out and now the process begins of discovery and consequences.

https://www.nytimes.com/2022/12/01/business/ppp-loans-covid-fintech-fraud.html?smid=em-share

 

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Two Fintechs Fueled Extensive Pandemic Relief Fraud, House Report Finds

Executives at Womply and Blueacorn, which facilitated millions of Paycheck Protection Program loans, flouted rules and themselves collected improper loans, investigators said.

“The faster the better,” the workers were told at the height of the coronavirus pandemic, as the little-known financial technology company Blueacorn raced to review small businesses that sought federal loans.

Speeding through applications, Blueacorn employees and contractors allegedly began to overlook possible signs of fraud, according to interviews and communications later amassed by investigators on Capitol Hill. The company weighed whether to prioritize “monster loans that will get everyone paid,” as the firm’s co-founder once said. And investigators found that Blueacorn collected about $1 billion in processing fees — while its operators may have secured fraudulent loans of their own.

The allegations against Blueacorn and several other firms are laid out in a sprawling, roughly 120-page report released Thursday by the House Select Committee on the Coronavirus Crisis, a congressional watchdog tasked to oversee roughly $5 trillion in federal pandemic aid. The 18-month probe — spanning more than 83,000 pages of documents, and shared in advance with The Washington Post — contends there was rampant abuse among a set of companies known as fintechs, which jeopardized federal efforts to rescue the economy and siphoned off public funds for possible private gain.

Some of the companies involved had never before managed federal aid, the report found. At the height of the pandemic, they failed to hire the right staff to thwart fraud. They amassed major profits from fees generated from the loans — large and small, genuine and problematic — that they processed and reviewed. And they repeatedly escaped scrutiny from the Small Business Administration, putting billions of dollars at risk, the probe found.

The trouble began under the Trump administration, after Congress first authorized the Paycheck Protection Program (PPP) in 2020. The roughly $800 billion initiative saw the government disburse more than 11 million loans to companies at risk of shutting their doors for good, helping keep them afloat until the health emergency eased. But the money became a tempting target for malicious actors, who took advantage of lax rules — and inadequate oversight — to bilk the government for staggering sums.

Fintech companies including Blueacorn, Womply and Kabbage were supposed to serve as middlemen — helping applicants complete paperwork and processing their requests for aid on behalf of banks and other large financial institutions. In some cases, though, the digital firms instead became vectors for the worst waste, fraud and abuse, according to congressional investigators led by Rep. James E. Clyburn (D-S.C.), the panel’s chairman.

At Blueacorn, for example, loan reviewers tied to the company told the select committee they were pressured to “push through” PPP applications even if they seemed suspicious. The company was especially interested in processing high-dollar applications, the report stated, even creating a special internal “VIPPP” label to ensure the biggest borrowers — which carried the promise of great fees — could receive expedited treatment.

The approach may have cost the government, though House investigators could not compute a final sum. It also came at the expense of smaller borrowers arguably in the greatest need, according to the report. As one Blueacorn co-founder, Stephanie Hockridge, appeared to remark over the messaging service Slack about these applicants: “who f—ing cares.”

The Covid Money Trail

It was the largest burst of emergency spending in U.S. history: Two years, six laws and more than $5 trillion intended to break the deadly grip of the coronavirus pandemic. The money spared the U.S. economy from ruin and put vaccines into millions of arms, but it also invited unprecedented levels of fraud, abuse and opportunism.In a yearlong investigation, The Washington Post is following the covid money trail to figure out what happened to all that cash.

The company did not immediately respond to a request for comment. Hockridge also did not immediately respond. Reached by The Post, a contractor that worked with Blueacorn rejected the conclusions of the report.

“As today’s report details, many fintechs, while promising to help disburse billions of Paycheck Protection Program dollars to struggling small businesses efficiently and expeditiously, refused to take adequate steps to detect and prevent fraud despite their clear responsibility to safeguard taxpayer funds,” Clyburn said in a statement.

The allegations underscore the challenge that the U.S. government faced amid the worst economic crisis since the Great Depression. Totaling more than $5 trillion, the country’s generous covid aid helped rescue millions of families, workers and businesses from financial ruin, even as it emerged as a tempting target for grift large and small, The Post has found in its year-long investigation, the Covid Money Trail.

The losses have been especially stark at the SBA, an agency tasked at the height of the pandemic to administer about $1 trillion in loans and grants. As it rescued businesses, the agency systematically failed to take proper care of its funds, opening the door for criminals around the world to use stolen or false information to obtain limited pandemic aid.

Repeatedly, the SBA’s inspector general, Hannibal “Mike” Ware, has joined other federal watchdogs in needling the agency for its poor oversight. In one early estimate, Ware said there could be more than $4 billion in PPP-related fraud, adding the losses are likely to grow as scrutiny of the program continues.

Yet fintech companies presented a special challenge to PPP. The firms were seen as critical in expanding access to capital, particularly for smaller borrowers, which could not obtain easy help during the pandemic from larger traditional lenders such as banks. But some fintech start-ups had few, if any, preexisting relationships with needy businesses. And in their haste to come online, the companies may not have been as diligent in scrutinizing PPP applications, experts later discovered.

“The involvement of fintech lenders in the paycheck was definitely a double-edged sword,” said Nick Schwellenbach, a senior investigator at the Project On Government Oversight, a watchdog group. “A lot of fintechs, but not all, really exercised insufficient due diligence in vetting loan applicants, and as a result, are disproportionately represented in the loans that have been deemed fraudulent or potentially fraudulent.”

House Majority Whip James Clyburn (D-S.C.), chairman of the House Select Subcommittee on the Coronavirus Crisis, speaks during a hearing in Washington on June 23, 2022. (Ting Shen/Bloomberg)

Congressional investigators last year came to identify six firms in particular — Blueacorn, BlueVine, Cross River Bank, Celtic Bank, Kabbage and Womply — that they believed were associated with potentially fraudulent loans. Their report released Thursday, issued after the committee requested an intricate series of records from these and other companies, shed new light on what Clyburn described as troubling business practices that have cost the government immensely.

At Kabbage, a fintech firm later acquired by American Express, the company’s own workers repeatedly shared concerns in private about fraud risks. In the earliest days of the pandemic loan program, an unnamed employee remarked to their supervisor in July 2020 — according to internal chat records later obtained by the House committee — their fear that the “level of fraud we’re reviewing is wildly underestimated.”

Kabbage, like many fintech companies, sought to streamline the process for small businesses to obtain PPP loans. It pitched potential customers on the premise that it had helped a wide array of firms — restaurants, retailers, shrimp boat operators and beekeepers, to name a few — obtain aid through the program even when big banks had stopped accepting new applicants. The company in 2020 said its efforts alone had helped save about 945,000 jobs.

But the committee said that senior officials at Kabbage seemed to miss obvious flags for fraud — incorrect tax documents, names and addresses that didn’t match on applications, identities that may have been stolen, and profit margins that didn’t make sense. Internally, its leaders appeared to dismiss the warning signs, too. Explaining its approach, a risk manager at Kabbage acknowledged in a separate exchange obtained by Congress that they took a more lax view on PPP lending because “the risk here is not ours — it is SBAs [sic] risk.”

Another Kabbage policy official put it more bluntly over email in September 2020, using a profanity to blast the SBA’s “rules that created the fraud.”

For Kabbage, the consequences became apparent in October 2020, after American Express acquired much of the company, leaving a portion of its remaining PPP loan portfolio to a new entity called KServicing. That company filed for bankruptcy two years later, as agents for KServicing said its outstanding PPP loans — roughly $1.3 billion — had become “overburdened” by ongoing disputes and open investigations.

KServicing did not immediately respond to a request for comment. It said in its October bankruptcy filing that it has “successfully serviced approximately 80 percent” of its PPP loans. It added that it “vigorously disputed” allegations of fraud, citing probes by the Justice Department and the work of the House’s select committee.

PPP did not just provide financial support to businesses facing a sudden drop in customers as the pandemic forced people to stay home. The law setting the program up also allowed major banks and other firms to collect fees based on the sizes of the loans they processed. Lenders then paid some of those fees to fintech companies, which helped recruit applicants and vet them for potential trouble.

In August 2021, researchers at the University of Texas at Austin painted a staggering picture of those earnings: They estimated that PPP appeared to generate about $38 billion in fees for lenders, about $8.6 billion of which ultimately went to fintech companies. The numbers led the report’s authors to conclude that the pandemic program “had the potential to be a profitable business” for its participants.

Before the pandemic, the fintech company Womply had supplied other businesses with marketing software. Then arrived PPP, which helped spur the company to put together what it branded as a “fast lane” service in February 2021 — a way to market, underwrite and vet PPP applications on behalf of major lenders.

The endeavor would prove profitable for Womply, which over the life of the program earned more than $2 billion in fees, lawmakers found. But officials at one lender that worked with Womply — in conversations with congressional investigators, detailed in the report — said it had earned that money even as it ignored “rampant fraud.”

That lender, a Florida-based company called Benworth, later indicated in an email that Womply had “placed our company in a very bad predicament due to the high likelihood of fraud” in its referred loans. Citing significant glitches in its systems to evaluate loans, another described Womply’s fraud-prevention efforts as “put together with duct tape and gum,” according to an email cited in the report.

The report alleges that Womply itself may have received federal funds improperly. Congressional investigators said the company in 2020 and 2021 obtained about $7 million in PPP aid. This September, however, the SBA determined Womply was ineligible to receive the aid — after the company requested to have its loans forgiven.

Womply’s chief executive, Toby Scammell, signed key loan documents seeking the government’s permission to waive its outstanding debts, according to the panel. Scammell, who previously pleaded guilty in 2014 to federal insider trading charges, ran his business’s stimulus fraud prevention efforts, investigators alleged.

The lawmakers’ report contends that Scammell later resisted providing key documents to the SBA and its inspector general in the course of their fraud investigations. Congressional aides also alleged that Womply transferred millions of PPP applicants’ tax and banking information to a new company, Solo Global, for unclear purposes.

Solo Global did not immediately respond to a request for comment.

Then-SBA Administrator Jovita Carranza listens as President Donald Trump speaks with members of the coronavirus task force during a briefing on April 2, 2020. (Jabin Botsford/The Washington Post)

For taxpayers, the risk that even larger sums of money may be lost to fraud remains great.

Under PPP, Congress allowed the SBA to forgive the loans of eligible borrowers provided they followed the rules, particularly by maintaining their payrolls. Lawmakers wanted to ensure the money could keep Americans employed — while sparing hard-hit small employers from debts that they might struggle later to repay.

By October, 93 percent of PPP recipients had some or all of their balances forgiven, according to the SBA’s data. But the high degree of forgiveness — and the lack of internal oversight — prompted the agency’s inspector general to warn in March that the government probably was “forgiving PPP loans for potentially fraudulent and ineligible applicants.”

“It’s pretty clear there are a lot of suspicious loans being forgiven,” said Sam Kruger, an assistant professor of finance at the University of Texas at Austin McCombs School of Business, who has studied the role of fintechs in pandemic lending.

The losses also have added to pressure on the Justice Department, which tapped Kevin Chambers this year to oversee the government’s work to find and prosecute pandemic-related crimes. This spring, federal prosecutors said they had brought charges and secured convictions involving more than $8 billion in misused covid funds, a significant portion of which includes PPP and other aid administered by the SBA.

On Thursday, Clyburn and his aides called on federal watchdogs to “conduct further investigation into these companies and pursue all appropriate remedies.” That could include Blueacorn, a firm founded by Nathan Reis, Hockridge and other entrepreneurs in 2020 to facilitate PPP loans. They advertised “free money” and loan approvals in “less than 30 seconds,” according to their marketing materials, drawing a flood of applicants. Reis did not immediately respond to a request for comment.

Over the life of the loan program, the company would process roughly $12.5 billion in PPP loans, a level of involvement in 2021 greater than even the giant multinational bank JPMorgan Chase, the report found. Blueacorn ultimately would reap more than $1 billion in taxpayer-funded fees, according to congressional investigators, who said the company invested few of those dollars into oversight while enabling potentially widespread abuse.

Working on behalf of its lending partners, Blueacorn was supposed to oversee fraud and identity verification and other borrower support. But company workers and contractors would later tell congressional investigators that they were ill-equipped for the task: One witness claimed they submitted 300 PPP loans to the SBA before they even received training.

“The more you submit, the more we get paid,” one worker said they were told by Blueacorn management.

In doing so, Blueacorn often prioritized the largest applicants, seemingly hoping to extract the most in taxpayer-funded fees, the report alleged. In a Slack message obtained by the committee and cited in the document, Hockridge at one point called loan reviewers’ attention to a “fire” — a $1.9 million loan that had been in the underwriting process for five days.

“I don’t need to tell you how much Blueacorn makes off of that loan alone,” she wrote.

Most of the fraud reviews ultimately fell to outside firms, the report found, including little-known enterprises such as Elev8 Advisors. The company, an Arizona-based firm led by Adam and Kristen Spencer, hired family members and friends with seemingly “no connection to the financial sector, and with no apparent experience in financial crime compliance, fraud prevention, or underwriting,” according to the probe.

In an unsigned statement, the company accused the House subcommittee of engaging in “unfair and misleading tactics,” promising a more fulsome rebuttal to come.

“This report represents an unfortunate politicization of an important function of our government,” the statement said. “Congress’ responsibilities to the constituents they were elected to represent does not include engineering misleading and disparaging headlines for political gains.”

The statement added that Elev8 Advisors “did not engage in any self-dealing and their own loans were completely appropriate and would pass muster in any objective review.”

The congressional report also alleged the Blueacorn founders, Reis and Hockridge, personally obtained about $300,000 in PPP loans, in ways that raised congressional investigators’ suspicions. In one application, for example, Reis indicated he was an African American veteran, contradicting information he submitted in the context of other PPP requests. The report claims the duo lived lavishly as a result of their enterprise, pointing to a video that showed Reis “showing off large amounts of cash in a bar.”


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“I’ve read a number of books that focus on sharing a similar message, including “The Secret” by Rhonda Byrne, “The Answer” by John Assaraf & Murray Smith, “The Celestine Prophecy” by James Redfield, “Think and Grow Rich,” by Napoleon Hill, and I must say that I find Rob’s to be my favorite. – Sheryl Woodhouse, founder of Livelihood Matters LLC

Two Fintechs Fueled Extensive Pandemic Relief Fraud, House Report Finds

Two Fintechs Fueled Extensive Pandemic Relief Fraud, House Report Finds

…And here is a genuine story about how even minimal effort to bring comfort to another human can result in outsized and wonderful results. How different the world might seem to many if that kind of true effort actually ran wild! It is a thought worth considering. It is also a siren call to each of us!

New research shows small gestures matter even more than we may think.

Colombo Family Crime Boss and 12 Others Are Arrested, Prosecutors Say

An indictment unsealed on Tuesday accuses the organization of orchestrating a two-decade scheme to extort a labor union.

Credit…Jesse Ward

 

For two decades, the leadership of the Colombo crime family extorted a Queens labor union, federal prosecutors said — an effort that continued unabated even as members of the mob clan cycled through prison, the family’s notorious longtime boss died, and as federal law enforcement closed in.

Over time, what began as a Colombo captain’s shakedown of a union leader, complete with expletive-laced threats of violence, expanded into a cottage industry, prosecutors said, as the Colombo organization assumed control of contracting and union business, with side operations in phony construction certificates, marijuana trafficking and loan-sharking.

On Tuesday, 11 reputed members and associates of the Colombo crime family, including the mob clan’s entire leadership, were charged in a labor racketeering case brought by the U.S. attorney’s office in Brooklyn.

All but two of the men were arrested Tuesday morning across New York and New Jersey, prosecutors said. Another was surrendered to the authorities on Tuesday; another defendant, identified as the family consigliere, remained at large, prosecutors said.

The indictment accuses the Colombo family of orchestrating a two-decade scheme to extort an unnamed labor union that represented construction workers, using threats of violence to secure payments and arrange contracts that would benefit the crime family.

The charges are an ambitious effort by the U.S. attorney’s office in Brooklyn and the Federal Bureau of Investigation to take down one of the city’s five Mafia families. In addition to the union extortion scheme, which is the heart of the racketeering charge, the indictment charges several misdeeds often associated with the mob, including drug trafficking, money laundering, loan-sharking and falsifying federal labor safety paperwork.

Detention hearings for the defendants in Brooklyn federal court continued into the evening Tuesday, as they entered not-guilty pleas to the charges; prosecutors had asked the court to keep 10 of the defendants in custody.

“Everything we allege in this investigation proves history does indeed repeat itself,” Michael J. Driscoll, F.B.I. assistant director-in-charge, said in a statement. “The underbelly of the crime families in New York City is alive and well.”

Around 2001, prosecutors said, Vincent Ricciardo — a reported captain in the family, also known as “Vinny Unions” — began to demand a portion of a senior labor union official’s salary. When Mr. Ricciardo was convicted and imprisoned on federal racketeering charges in the mid-2000s, prosecutors said, his cousin continued to collect those payments.

Starting in late 2019, prosecutors said, the senior leadership of the Colombo family became directly involved in the shakedown, which extended to broader efforts to siphon money from the union: for example, manipulating the selection of union health fund vendors to contract with entities connected to the family, and diverting more than $10,000 each month from the fund to the family.

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Andrew Russo, 87, who prosecutors describe as the family boss, is accused of taking part in those efforts, as well as a money-laundering scheme to send the proceeds of the union extortion through intermediaries to Colombo associates. He was among nine defendants charged with racketeering.

Mr. Russo appeared in court virtually from the hospital Tuesday; he is set to be detained upon his release, pending a future bail hearing.

The family’s infamous longtime boss, Carmine J. Persico, died in federal custody in North Carolina in March 2019.

Federal law enforcement learned of the extortion scheme about a year ago, prosecutors wrote in a court filing Tuesday; investigators gathered thousands of hours of wiretapped calls and conversations recorded by a confidential witness, wrote the prosecutors, who also described law-enforcement surveillance of meetings among the accused conspirators.

The authorities said they repeatedly captured Mr. Ricciardo and his associates threatening to kill the union official. “I’ll put him in the ground right in front of his wife and kids,” Mr. Ricciardo was recorded saying in June.

On another occasion cited by prosecutors in the memo seeking his detention, Mr. Ricciardo directed the union official to hire a consultant selected by the Colombo family, saying: “It’s my union and that’s it.” Prosecutors said his activities were overseen by a Colombo soldier and the consigliere who remains at large.

Much of the activity outlined in the indictment took place while the defendants were either in prison or on supervised release for prior federal mob-related convictions. Theodore Persico Jr., described as a family captain and soldier, was released from federal prison in 2020 and, despite a directive not to associate with members of organized crime, “directed much of the labor racketeering scheme,” prosecutors said.

Mr. Persico, 58, is set to inherit the role of boss after Mr. Russo, prosecutors wrote.

Several of the defendants were named in what prosecutors described as a fraudulent safety training scheme, in which they falsified state and federal paperwork that is required for construction workers to show they have completed safety training courses.

One of the defendants, John Ragano — whom prosecutors say is a soldier in the Bonanno crime family — is accused of setting up phony occupational safety training schools in New York, which prosecutors said were “mills” that provided fraudulent safety training certificates to hundreds of people.

In October 2020, prosecutors said, an undercover law enforcement officer visited one of the schools in Ozone Park, Queens, and received, from Mr. Ricciardo’s cousin, a blank test form and an answer sheet; weeks later, the agent returned to pick up his federal safety card and paid $500.

The purported schools were also used for meetings with members of La Cosa Nostra — the group of crime families commonly known as the Mafia — and to store illegal drugs and fireworks, according to the indictment.

Mr. Ragano wasn’t charged on the racketeering count, although prosecutors also sought his detention pending trial. In addition to the racketeering count, several defendants, including Mr. Ricciardo and his cousin, were charged with extortion, conspiracy, fraud and conspiracy to make false statements.

William K. Rashbaum contributed reporting.

Correction: 

An earlier version of this article misstated the number of people identified in an indictment as members of the Colombo crime family. It is 11, not more than a dozen.